Financial Planner - Typical Charges?

jem16

Toki wrote: »

his estate would be (just!) over inheritance tax threshold

How much is just?

Toki

Right, got the recommendations in front of me now. I'll summarise below.

My dad's estate is worth £458,000 according to report, however I think the values of the 2 houses are too high (think valuations came from my dad so not blaming her) so I would say estate is worth £360,000 at most.

He has 1 private pension worth £61,075.01
He has 1 company pension worth £33k. He can take more than 25% of this, so total tax free amount is £20k

My dad has another pension which pays £500 per month. He has asked CFP to receive another £500 per month = £6k per year from his estate / pensions. Her advice is to take £20k tax free amounth from company pension and invest in "Onshore bond - Standard life WRAP" The remaninder of pension will equal an annuity of £700 per annum. From the bond, he will take £1,000 per annum.

Private pension - To be put into Standard life phased pension fund withdrawl called drip feed drawdown which will equal £4,300 per annum. That gives the £6k per year total, £700 from annutiy, £1k from bond, £4.3k from new pension.

Now, onto the fees. For arranging the private drawdown pension, It states under "Commission disclosure" section, "We have agreed that xxxxx(CFP my dad is using) limted will be remunerated for its advice by fee and not by commissions generated from insurance companies and other investment providers" However, further on in report, in the illustration section titled "How much will the advice cost?" it states, For arranging the plan (Standard Life Assurance Limited) will pay commission to xxxxx(CFP my dad is using) limted out of the deductions, and the amounts will depend on the size of the payments. We'll pay the following immediately: Initial commission £1,811.95." This works out as 3% of £60,398.33

Does this mean she is receiving the 3% from my dad, and 3% commission from Standard Life as well? It goes on to say fund based renewal commission of £379 for year 2 and £347 in year 4.

For the bond, it also states "How much will the advice cost?" it states, For arranging the bond we (Standard Life Assurance Limited) will pay commission to xxxxx(CFP my dad is using) limted out of the deductions, and the amounts will depend on the size of the payments. We'll pay the following immediately: Initial commission £600." This works out as 3% of the £20k. Again, this sounds like she receives another 3% from Standard Life? Am I reading this right?

Another concern, although it may be typical?, is for the drawdown pension and is under "What effect will the deductions have? - Charges will reduce investment to that date (mar 2016) from 7% to 3.9% a year" Quite a difference. Is this usual?

She also recommends my dad moves his ISAs into the WRAP platform and add in this years £10,860 also. There is no inital fee to do this. The £10,860 would come from separate savings he has.

Now I know the CFP has to get paid, I really don't expect something for nothing for my dad. But it does seem its structured for her benefit as much if not more than my dads. Appreciate your thoughts jem16 and dunstonh. I do realise its difficult to give 100% reliable advice with only a snapshot of information but would like to know is this typical fees?

Thanks in advance.

jem16

Toki wrote: »

Does this mean she is receiving the 3% from my dad, and 3% commission from Standard Life as well?

No, my reading of that is that the fee is being paid from the commission generated by the product as opposed to your Dad actually writing a cheque. This is fairly normal. Have you asked Dad how he is actually paying the CFP?

It goes on to say fund based renewal commission of £379 for year 2 and £347 in year 4.

Which seems to be the 0.75% you mentioned earlier.

For the bond, it also states "How much will the advice cost?" it states, For arranging the bond we (Standard Life Assurance Limited) will pay commission to xxxxx(CFP my dad is using) limted out of the deductions, and the amounts will depend on the size of the payments. We'll pay the following immediately: Initial commission £600." This works out as 3% of the £20k. Again, this sounds like she receives another 3% from Standard Life? Am I reading this right?

Again she will receive her fee from your Dad via the product.

Another concern, although it may be typical?, is for the drawdown pension and is under "What effect will the deductions have? - Charges will reduce investment to that date (mar 2016) from 7% to 3.9% a year" Quite a difference. Is this usual?

A RIY of 3.1% sounds high to me.

She also recommends my dad moves his ISAs into the WRAP platform and add in this years £10,860 also. There is no inital fee to do this. The £10,860 would come from separate savings he has.

Fair enough. I assume she would get 0.75% of the ISAs each year? How much has got in ISAs to transfer over?

Now I know the CFP has to get paid, I really don't expect something for nothing for my dad. But it does seem its structured for her benefit as much if not more than my dads. Appreciate your thoughts jem16 and dunstonh. I do realise its difficult to give 100% reliable advice with only a snapshot of information but would like to know is this typical fees?

Thanks in advance.

So is Dad investing approximately £61k from the pension plus £20k from the bond and £10.8k from the ISA so total of £91.k?

Fees seem to be about £2410 which is a bit high in my opinion. 0.75% of £91k is £682.50 - not sure on that one.

Did you find the reason the Bond was recommended? Also you mentioned the effect of charges on the pension - did you find the same info on the Bond?

Toki

jem16 wrote: »

No, my reading of that is that the fee is being paid from the commission generated by the product as opposed to your Dad actually writing a cheque. This is fairly normal. Have you asked Dad how he is actually paying the CFP?



Which seems to be the 0.75% you mentioned earlier.



Again she will receive her fee from your Dad via the product.



A RIY of 3.1% sounds high to me.



Fair enough. I assume she would get 0.75% of the ISAs each year? How much has got in ISAs to transfer over?



So is Dad investing approximately £61k from the pension plus £20k from the bond and £10.8k from the ISA so total of £91.k?

Fees seem to be about £2410 which is a bit high in my opinion. 0.75% of £91k is £682.50 - not sure on that one.

Did you find the reason the Bond was recommended? Also you mentioned the effect of charges on the pension - did you find the same info on the Bond?

My dad isn't that savvy so not sure how it's being paid. i can always ask her though.

Regarding the bond, the commission is £142.57 in year 2, £134.89 in year 5, £120.10 in year 10 and £61.47 in year 24. The reason for advising this is "this type of investment provides you with the flexibility to take incomine using the tax deferred facility." "You may take 5% income per annum without the deduction of income tax and will not be subject to income tax until a chargeable event occurs"

The bond also states "How could this affect the growth rate? - Charges will reduce investment growth to that date - In year 3 from 6% to 2.5% a year. in year 5 - from 6% to 2.9% a year. In year 10 from 6% to 3.2% a year. In year 25 from 6% to 3.4% a year" Again does this seem high? It does to me. He would be better putting some into a high interest bank account and the rest into a 5 year fixed bond surely? That would pay more than 2.9%. Appreciate these figures are only guides as it could under or outperform this.

jem16

Toki wrote: »

My dad isn't that savvy so not sure how it's being paid. i can always ask her though.

Probably best to check. I'm sure Dad would know if he had written a cheque to the CFP though?

Regarding the bond, the commission is £142.57 in year 2, £134.89 in year 5, £120.10 in year 10 and £61.47 in year 24. The reason for advising this is "this type of investment provides you with the flexibility to take incomine using the tax deferred facility." "You may take 5% income per annum without the deduction of income tax and will not be subject to income tax until a chargeable event occurs"

The reason that it's not subject to income tax is that you are actually making capital withdrawals. The capital itself has already been taxed within the bond itself. This is why the bond is useful for higher rate taxpayers who would be basic rate taxpayers in retirement as dividend payments within the bond would not be subject to extra tax. I don't see that this applies to your Dad as he is not a higher rate taxpayer and isn't anywhere near the age allowance reduction where he loses some of his higher personal allowance at age 65. If your Dad had put the £20k into an ISA this year and then the remaining £10k next April (only 8 months later) he could have had genuine tax-free withdrawals.

I really can't see that reason as being a good reason.

No mention of it being used for IHT planning? No mention of it being written into trust?

The bond also states "How could this affect the growth rate? - Charges will reduce investment growth to that date - In year 3 from 6% to 2.5% a year. in year 5 - from 6% to 2.9% a year. In year 10 from 6% to 3.2% a year. In year 25 from 6% to 3.4% a year" Again does this seem high? It does to me. He would be better putting some into a high interest bank account and the rest into a 5 year fixed bond surely? That would pay more than 2.9%. Appreciate these figures are only guides as it could under or outperform this.

The first 5 years for an Investment Bond are always charged higher. There is often also an exit fee if you cash in before 5 years - any mention of this?

Basically at year 3 and year 5 you have a RIY of 3.5% and 3.1%. Year 10 is 2.8%. To give you a comparison my RIY for my Investment Bond at the same years are 0.8%, 0.7% and 1.2%.

Toki

jem16 wrote: »

Probably best to check. I'm sure Dad would know if he had written a cheque to the CFP though?




The reason that it's not subject to income tax is that you are actually making capital withdrawals. The capital itself has already been taxed within the bond itself. This is why the bond is useful for higher rate taxpayers who would be basic rate taxpayers in retirement as dividend payments within the bond would not be subject to extra tax. I don't see that this applies to your Dad as he is not a higher rate taxpayer and isn't anywhere near the age allowance reduction where he loses some of his higher personal allowance at age 65. If your Dad had put the £20k into an ISA this year and then the remaining £10k next April (only 8 months later) he could have had genuine tax-free withdrawals.

I really can't see that reason as being a good reason.

No mention of it being used for IHT planning? No mention of it being written into trust?




The first 5 years for an Investment Bond are always charged higher. There is often also an exit fee if you cash in before 5 years - any mention of this?

Basically at year 3 and year 5 you have a RIY of 3.5% and 3.1%. Year 10 is 2.8%. To give you a comparison my RIY for my Investment Bond at the same years are 0.8%, 0.7% and 1.2%.

I definitely know he hasn't paid her any money up to this point. Sounds like you will be spot on then regarding payment. Okay, understand better about the bond now you explain the 40% which definitely does not apply to my dad. Seems a strange choice and will ask more about this. It does state "Total amount payable on death is 100.1%" so may be being used for this reasons?

It states in the bond illustration "Your bond has no fixed term"

The reduction in yield does sound very high, especially compared to what you are paying jem16.

jem16

Toki wrote: »

It does state "Total amount payable on death is 100.1%" so may be being used for this reasons?

That's normal. Basically the Investment Bond is a Life Assurance product. On death it will pay out the value (in your case 100.1%) of your Bond at the time of death. It's not a guarantee of getting back the full amount unless a guaranteed fund is being used. However no different to using ISA funds or Unit Trusts.

Do you know what fund/s is/are being used?

It states in the bond illustration "Your bond has no fixed term"

Often the case. However there may still be an early cashment doesn't carry a charge.

Is the Bond being written in trust?

Toki

jem16 wrote: »

That's normal. Basically the Investment Bond is a Life Assurance product. On death it will pay out the value (in your case 100.1%) of your Bond at the time of death. It's not a guarantee of getting back the full amount unless a guaranteed fund is being used. However no different to using ISA funds or Unit Trusts.

Do you know what fund/s is/are being used?



Often the case. However there may still be an early cashment doesn't carry a charge.

Is the Bond being written in trust?

Okay, that makes sense, his estate will get back whatever is left if he dies then.

The fund is "Standard Life MyFolio Multimanager IV Life Fd"

I can't see any mention of fees to exit at anytime. Again, can't see any mention in the report that this will be written into trust. Will have to ask her this also.

dunstonh

It does state "Total amount payable on death is 100.1%" so may be being used for this reasons?

Bonds are life assurance products. Their generic names are either single premium endowments or single premium whole of life assurances (now you can see why they are called investment bonds instead). They have to have an element of life assurance to fall under the life assurance tax wrapper. 100.1% is the minimum.

Bond taxation is higher than an ISA and most of the same funds are available in ISA or bond (or unwrapped) - where it isnt available, a close match usually is. £20k would take 2 years to put into ISA.

I am really struggling to see any reason for having the bond for £20k in this case.

Toki

dunstonh wrote: »

Bonds are life assurance products. Their generic names are either single premium endowments or single premium whole of life assurances (now you can see why they are called investment bonds instead). They have to have an element of life assurance to fall under the life assurance tax wrapper. 100.1% is the minimum.

Bond taxation is higher than an ISA and most of the same funds are available in ISA or bond (or unwrapped) - where it isnt available, a close match usually is. £20k would take 2 years to put into ISA.

I am really struggling to see any reason for having the bond for £20k in this case.

I'll ask her again, see below for the question I asked and her response. She is on holiday until later in the week but will let you know once she gets back to me. Thanks, really gratful for your and jem16's time and responses so far.

Regarding the £20,000 bond you advised, is this a wrapped product? Is this cost beneficial over an unwrapped OEICs/UTs? The bond is a tax wrapper and as such costs more, it can be a great advantage as it is used in long term care planning, tax planning, can be written under trust or assigned.

The bond does have an initial fee of 3% and the ISA has no initial fee as per the reports supplied.